Teachers pension additional contribution tax relief

AA-Audrey

I am currently paying into the teachers pension scheme. I earn c£27500. I want to buy £3000 in additional pension and spread the cost over 3 years. This will cost £979 month (£11750 year), taken from gross salary. As this is a defined benefit pension, I am confused about the amount relevant for tax relief. I assumed it was simply £11750 and tax relief at source. Still I’m concerned that it could be classed as 16x the increase in benefit  (ie 16x£3000 = £48000). If it’s the latter then it takes me over the tax relief threshold.

I am also a bit confused about the rules over using tax relief from the previous 3 years  (carry forward). Once the other conditions are met, I  understand I can only use up to my current salary. Would this mean that the maximum I could receive pensions tax relief this year - providing I have enough to carry forward - would be £27500 (usual salary) + £27500 carry forward = £ 55000 total.

the reason I ask is I want to max out pension contributions this year into my TP and a SIPP

Dazed_and_C0nfused

Would this mean that the maximum I could receive pensions tax relief this year - providing I have enough to carry forward - would be £27500 (usual salary) + £27500 carry forward = £ 55000 total.

No, the maximum you can receive tax relief on is limited by your taxable earnings.

Is the £27,500 you earn what will be shown on your P60 (taxable pay) or your salary before your normal pension contributions?

Will the extra you pay be paid by lump sum of as a deduction from your payslip each month?

Do you have any other taxable income (ignoring a few pounds of interest or dividends)?

AA-Audrey

Thanks for your reply. £27,500 is gross salary. I also receive £7200 year from rental income. So my limit is £34700? If so, what is the purpose of carry forward as I assumed that was my annual allowance? (Apologies if I’m missing something)

Payments will be deduction from payslip so tax relief at source. Payments will be spread over 3 years - £979 month to get £3000 extra pension a year.

AA-Audrey

Apologies just read your response again - taxable earnings are obviously less than gross. Don’t have the exact figure to hand but probably more like 23k

OldBeanz

In a net pay arrangement you are constrained by the amount of tax you pay as well as notmal earning regulations.
You will still be liable for tax so you do not need to worry.
With inflation about to take off I would be wondering why you cannot find a way to stretch to the full inflation proof additional pension of circa £7.5k pa.

AA-Audrey

OldBeanz said:

.
With inflation about to take off I would be wondering why you cannot find a way to stretch to the full inflation proof additional pension of circa £7.5k pa.

Yes. I am basically trying to work out the absolute maximum additional money I can put into TP and a SIPP a year and still get tax relief. 

I am assuming it’s taxable income, so 27500 salary minus current pension payments which means c23/24000 and 7200 rental minus allowable expenses means around 6000. So total c£30k additional pension spread out over salary sacrifice and SIPP???

I still don’t quite understand the benefit of carry forward but this amount (ie £30k max) should be more than enough 

newretiree

I don’t think you can include the rental income in your calculation as it’s not classed as earned income.

Dazed_and_C0nfused

You have to use the current tax years allowance before you can use carry forward so it's usually for higher earners who are earning more than £40k.

If you are looking at how much you can pay and get tax relief then you probably need to be a bit more precise.

Presumably your normal pension contributions are a fixed % so you can take your expected teachers earnings and deduct that to arrive at your taxable pay.

Your rental income is irrelevant as far as how much you can contribute is concerned but it will affect the amount of tax relief you can benefit from.  But it's the profit you need to focus on not the gross rents.

I assumed it was simply £11750 and tax relief at source. 

The terminology around pensions can be a bit confusing.  If you were paying these particular contributions via payroll they would be net pay i.e. instead of having taxable pay of c£23/24,000 it would be £11250/12250.

Relief at source is where the pension provider adds basic rate tax relief to your contributions, usually in a defined contribution scheme.

So total c£30k additional pension spread out over salary sacrifice and SIPP???

No, you only have c23/24000 pensionable earnings so cannot contribute more than that.

Where does salary sacrifice come into this?

Do you have another job/pension not previously mentioned?

AA-Audrey

Dazed_and_C0nfused said:

You have to use the current tax years allowance before you can use carry forward so it's usually for higher earners who are earning more than £40k.

If you are looking at how much you can pay and get tax relief then you probably need to be a bit more precise.

Presumably your normal pension contributions are a fixed % so you can take your expected teachers earnings and deduct that to arrive at your taxable pay.

Your rental income is irrelevant as far as how much you can contribute is concerned but it will affect the amount of tax relief you can benefit from.  But it's the profit you need to focus on not the gross rents.

I assumed it was simply £11750 and tax relief at source. 

The terminology around pensions can be a bit confusing.  If you were paying these particular contributions via payroll they would be net pay i.e. instead of having taxable pay of c£23/24,000 it would be £11250/12250.

Relief at source is where the pension provider adds basic rate tax relief to your contributions, usually in a defined contribution scheme.

So total c£30k additional pension spread out over salary sacrifice and SIPP???

No, you only have c23/24000 pensionable earnings so cannot contribute more than that.

Where does salary sacrifice come into this?

Do you have another job/pension not previously mentioned?

Thanks. This is helpful. i am assuming with the employer contribution (c£6000) this reduces it further.

Saying all that, with a defined benefit scheme (such as TP), I thought the amount relevant re: tax relief is the increase in pension each year x16. This brings me back to the original question vis a vis increasing my defined benefit by £3k ‘in an instant’ and then paying by instalments. 

Hope that makes sense, thanks for all your help so far 

AA-Audrey

In shortAA-Audrey said:

Dazed_and_C0nfused said:

You have to use the current tax years allowance before you can use carry forward so it's usually for higher earners who are earning more than £40k.

If you are looking at how much you can pay and get tax relief then you probably need to be a bit more precise.

Presumably your normal pension contributions are a fixed % so you can take your expected teachers earnings and deduct that to arrive at your taxable pay.

Your rental income is irrelevant as far as how much you can contribute is concerned but it will affect the amount of tax relief you can benefit from.  But it's the profit you need to focus on not the gross rents.

I assumed it was simply £11750 and tax relief at source. 

The terminology around pensions can be a bit confusing.  If you were paying these particular contributions via payroll they would be net pay i.e. instead of having taxable pay of c£23/24,000 it would be £11250/12250.

Relief at source is where the pension provider adds basic rate tax relief to your contributions, usually in a defined contribution scheme.

So total c£30k additional pension spread out over salary sacrifice and SIPP???

No, you only have c23/24000 pensionable earnings so cannot contribute more than that.

Where does salary sacrifice come into this?

Do you have another job/pension not previously mentioned?

Thanks. This is helpful. i am assuming with the employer contribution (c£6000) this reduces it further.

Saying all that, with a defined benefit scheme (such as TP), I thought the amount relevant re: tax relief is the increase in pension each year x16. This brings me back to the original question vis a vis increasing my defined benefit by £3k ‘in an instant’ and then paying by instalments. 

Hope that makes sense, thanks for all your help so far 

In short, for tax relief purposes, do I need to think about the fact I’ve just added £3k defined benefit to my pension or the instalments I am/will be paying each month. if the latter then it’s all good

AA-Audrey

Oldbeanz - I get the point about paying for 7.5k (maximum) but I think I want the flexibility of a SIPP. i likely want to retire before 67